Back in mid-June, in an installment of our popular "Buy, Sell or Hold" feature, Jack Barnes told you that Bank of America Corp. (NYSE: BAC) was a "Sell."
The reason: The big bank is infested with so many problems that it's literally a financial house of cards on the brink of collapse.
Late today (Friday), BofA added a new problem to its already hefty list of troubles: It's one of 17 big banks being sued by the federal government because of the lousy mortgage securities these institutions created – securities that led to the collapse of the American housing market. Bank of America is being sued because of $6 billion in bad loans.
Superinvestor Warren Buffett recently announced he would invest $5 billion in BofA, a move that was seen as a "vote of confidence" in the heavyweight bank.
BofA shares closed at $10.80 each on the Friday before our "Buy, Sell or Hold" report, which was published on Monday, June 13. The shares closed today at $7.25 each, a 33% decline from Barnes' "Sell" recommendation.
It was the U.S. Federal Housing Finance Agency that late today sued the 17 major banks, alleging that these institutions misrepresented the quality of mortgage-backed securities they created and sold. The low quality of these securities helped fuel the U.S. housing bubble – and the collapse that was inevitable.
In addition to BofA, the 17 big banks being sued by the agency include Citigroup Inc. (NYSE: C), and others.
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News and Related Story Links:
- Money Morning:
It's Time to Bail on Bank Stocks
- Money Morning "Buy, Sell or Hold" Feature:
Buy, Sell or Hold: Bank of America Corp. (NYSE: BAC) Is a House of Cards on the Verge of Collapse.
- New York Times Dealbook:
Buffett to Invest $5 Billion in Bank of America.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.